Korean investors using RIA accounts to sell overseas stocks must verify the settlement completion date, not the order execution date, according to guidance issued by the Financial Supervisory Service on May 26. The tax deduction rate is determined by the settlement completion date, and a difference of one or two days can significantly impact tax benefits. RIA allows investors to transfer overseas stocks to domestic securities firms' RIA accounts, sell them, and receive tax deductions on capital gains if proceeds are invested in domestic listed stocks or domestic equity funds for at least one year. This year, the deduction rate drops from 80% for settlements completed by July 31 to 50% from August 1 through year-end.
FSS Emphasizes Settlement Date Verification for Tax Rate Application
The FSS emphasized that investors must check the actual settlement completion date through their securities firms. Overseas stocks require T+1 to T+3 business days for settlement depending on the country, meaning settlement completes 1 to 3 business days after the order execution date (T). A sell order executed before the end of July may still receive the lower deduction rate if settlement completes in August.
For example, a sell order executed on July 27 with settlement completed on July 29 receives the 80% deduction rate. However, an order executed on July 31 with settlement completed on August 4 receives the 50% deduction rate.
The tax burden difference is substantial. For capital gains of 20 million won, settlement completed by July 31 results in capital gains tax of approximately 330,000 won. If settlement completes in August with the 50% deduction rate, the tax increases to 1.65 million won.
RIA Account Holders Must Maintain Proceeds for One Year
To maintain tax benefits, investors must keep overseas stock sale proceeds in their RIA accounts in the form of domestic listed stocks, domestic equity funds (including ETFs), or deposits for at least one year.
If investors make net purchases of overseas stocks in other accounts while receiving RIA tax benefits, the benefits may be reduced. Increasing overseas stock investments again reduces the capital gains deduction amount proportionally to the net purchase amount.
RIA Account Usage Surges in Recent Months
RIA usage has grown rapidly in recent months. Cumulative RIA accounts increased from 83,035 at the end of March to 313,594 at the end of June. Total balances grew from 414 billion won to 2.656 trillion won during the same period.
FAQ
Why does the settlement date matter more than the order execution date for RIA tax rates?
The tax deduction rate applies based on when the settlement completes, not when the order executes. Overseas stocks take T+1 to T+3 business days to settle depending on the country. An order executed on July 31 may settle in August, resulting in the lower 50% deduction rate instead of the 80% rate.
How much tax difference can result from settlement timing?
For capital gains of 20 million won, settlement completed by July 31 results in tax of approximately 330,000 won with the 80% deduction rate. Settlement completed in August results in tax of 1.65 million won with the 50% deduction rate.
